Question

AUDITING

The managing director of Pakatan Harapan Pty. Ltd asked the company' auditor: Tom Hardy to complete the audit in time to submit audited financial statements to a financial institution as part of a loan application. Hardy immediately accepted the engagement and agreed to provide a auditor's report within one month. The client agreed to pay the normal audit fees plus a percentage of the loan if it was granted. Hardy hired two recent accounting graduates to conduct the audit and spent several hours telling them exactly what to do. He told the new assistants not to spend time reviewing the internal control but instead to concentrate on proving the mathematical accuracy of the general and subsidiary ledgers and summarizing the data in the accounting records that supported the company's financial statements. The new assistants following Hardy's instructions, and after two weeks gave Hardy the financial statements excluding the notes to the financial statements. Hardy reviewed the statements and prepared an unqualified auditor's report. The report, however, did not, refer to approved accounting standards. Required: Identify and briefly describe how the actions of Hardy have resulted in failure to comply with approved standards on auditing.

Answer 1

In the above case Hardy actions have resulted in failure to comply with auditing standards due to following reasons:

1) He didn't exercise due profesaional care .He appointed 2 recent graduate assistants to review financial statements and pay less attention on internal control whereas audit standards state that one must review and analyse the internal control as well while preparing audit report.

2)Lack of sufficient audit evidence

His assistants provided him the financial statements without notes which means lack of information on the items in financial statements.

3) Inadequate evidence related to the evaluation of significant management estimates.

4)There was no proper planning.

5)The audit report must have mandated by GAAP.